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Investing in classic cars powers ahead

The Hagi Value in the Classic Car Market conference provided some valuable insight into investing in classics, writes Mark Smyth

17 August 2017 - 05:57
Mark Smyth

Porsche provided the second best investment returns in the last quarter of 2016 after Californian wine. Picture: NEWSPRESS UK

If you are fortunate enough to be an ultrahigh net worth individual (UHNWI) you are worth at least $30m excluding the value of your main home.

To give you some idea, Chicago has 135,300 of these wealthy individuals compared to 145,100 across the entire Africa. Most of those are in SA, where there are 40,400, an increase of 8% over the past 10 years and up 5% in the past year alone, according to Andrew Shirley, editor of the Knight Frank Wealth Report.

These figures explain in part why SA has the highest number of private jets in Africa at 161, but it is not all about the UHNWIs. In Johannesburg alone, Shirley says there are 18,200 dollar millionaires and across SA 39% of wealthy individuals have a collection of luxury investments.

Shirley was talking at the inaugural Historic Automobile Group International (Hagi) Value in the Classic Car Market SA conference alongside the Concours SA at Sun City.

Organised in partnership with The Car Finders SA, Knight Frank and Nedbank, the event provided valuable insights for those who are keen to invest in classic cars.

Statistics

And invest you should because the statistics are astonishing. In the past 12 months, wine has provided the best investment return at 24% globally, but it is collectible cars that have powered ahead over the longer term. Over the past five years, the Historic Automobile Group Index shows that cars have provided a return of 129%, much more than wine in second place at 55%. Over 10 years, collectible cars have generated a return of 404% compared to wine at 256%.

What about traditional investment returns? Well, over the same 10-year period, gold has returned 195% and the JSE All-Share equities just 82%. Classic cars — 404%. We had to say that again because even we are astonished and we are classic car enthusiasts.

Collectible cars have proven to be the best luxury investment over the past ten years by some margin. Graphic: KAREN MOOLMAN

What is a classic?

So what constitutes a classic car? Dietrich Hatlapa, the founder of Hagi, explained at the conference that while most used cars depreciate, if a model appreciates then initially it is labelled a future classic. Should its value surpass its initial purchase price plus inflation you have a proper classic car. Generally the best-returning collectible classics are those from the 1920s, ’30s, ’50s and ’60s but then you have to add in the supercar phenomenon.

Supercars contribute about $25bn to the global $100bn classic car market although some, such as the Ferrari LaFerrari, McLaren P1 or Porsche 918 Spyder, might be termed as future classics while still being highly collectible. They can still be referred to as investments but especially in this segment you have those who seek return on investment more than just the return in terms of enjoyment.

It is important not to confuse collecting with investment, says Steve Linden, cofounder and chief information officer of Chrome Strategies Management in the US. He says knowing about cars is very different to knowing about investing in classic cars. A prime example of this is that many investors put their investments into storage, but Linden says storage is more important than many realise. People store improperly too often or do not use the car, which then deteriorates, negating the investment.

Many see the classic car market as an investment mechanism just for enthusiasts, but that is oversimplifying things.

Hatlapa says the huge price appreciation has occurred partly because many wealthy enthusiasts lost money in traditional market investments and chose to invest in cars instead.

He says classic cars are a habit of the heart but it is not true that enthusiasts and investors are two separate things entirely. Although enthusiasts love their cars, they still want to know what’s going on with their value

The real good returns in the market are not the financial returns but the returns brought about through joy of ownership, he says.

If you are a wine or art collector, you can look at it and perhaps show it to your friends, but if you own a classic car, it can be appreciating in value even while you are driving it on a beautiful day to go and see your friends’ art and wine collection. And no one is going to look back on their life with fond memories of the day they spent looking at how their shares were performing.

Then there is the question of restoration. Real enthusiasts will relish the idea of restoring a classic, but it will have significantly less appeal to those who are new investors in the market. Hatlapa also advises that there is something called the "shadow inventory" — classics that are sitting in garages and collections or are being used, raced or used for parts.

Restore or preserve

These classics can prevent prices of pristine models rising higher but then when they are restored they increase the number of models in the market.

Restoration is, of course, also a time-consuming and expensive exercise, according to Johan Krause of Auto Creations. You can choose to restore or to preserve, the latter meaning to keep a vehicle as is but ensuring it runs properly.

Krause cautions never to overrestore a car.

"Restore a car to factory condition," he says. "Anything beyond that is not a restoration, it’s just bling-bling."

The classic car market is not all about Ferraris and Porsches, although they have given the best returns over the past few years. There are Mercedes, MGs, Alfa Romeos and others.

Recently there has been a surge in prices of more common models such as the Ford Escort and Capri as well as the Peugeot 205 GTi and Citroen DS, cars that have appeal particularly to those who grew up in a certain era such as the 1980s.

The automotive world is changing and provided there is still space for classic cars on roads full of self-driving cars, there will always be a demand for them. One day in the future, people will yearn for the unique feeling of actually driving in the same way they love to listen to a record today.

Art cars

The last word goes to Robert Coucher, founder of Octane magazine: "Art cars such as Bugatti, Bentley, Rolls-Royce and others will continue to be highly sought after, but it is the driving experience of a classic that will keep the market going."